Food here is as expensive as it is in Iceland, and our hotels are even more expensive. Renting a car is admittedly cheaper here, but we've managed to outdo Iceland when it comes to housing prices.

Iceland is considered a very expensive country. But a visit to that northern isle reveals that we here in the Middle East have managed to match even Iceland. Food here is as expensive as it is in Iceland, and our hotels are even more expensive. Renting a car is admittedly cheaper here, but we've managed to outdo Iceland when it comes to housing prices.

But it's not just Iceland. Visits to several other places that, until a few years ago, were considered horrendously expensive reveal that we've caught up with them as well. A friend of mine visiting from Miami complains bitterly about the prices, which he says are higher than Miami's - including for restaurants and bars.

In "expensive" France, Camembert cheese costs less than it does here, as do bread and most other food products. A simple hotel anywhere in France costs 60 euros, as does a nice bed-and-breakfast. Where in Israel can you find a bed-and-breakfast or a hotel room for NIS 300 a night? Even rooms in youth hostels cost more than that.

A decent hotel in London's Russell Square, a hot spot for tourists, costs 110 euros a night, including breakfast. Show me a similar hotel in Tel Aviv for NIS 550 a night.

So how did Israel become one of the most expensive places on earth?

One reason is the strengthening shekel. In June 2002, the exchange rate was NIS 5 to the dollar; now it is only NIS 3.8. That is a significant increase, and it raises our prices compared to those in other countries.

Another reason is the high risk level in Israel, which compels hotel and business owners to charge a risk premium. As an example, just look at yesterday's rocket attack near Eilat.

Yet another reason is the structure of the economy, which is highly concentrated. We have too many conglomerates, cartels and entire industries dominated by only two or three competitors. That inevitably leads to high fees and sky-high prices.

And then, of course, there are the big monopolies, which have been making fools of us for years. Take, for instance, the Israel Electric Corporation, which suffers from inefficiency, excess manpower, excessive salaries and fabulous pensions - all of which find expression in the price of electricity, as well as in the company's heavy debts. Now, the IEC is threatening us with rolling power outages at the height of the current heat wave - and at the same time demanding an increase of 18 percent (! ) in electricity rates.

Also worth mentioning are the ports cartel, which gives terrible service but collects scandalous "transit fees" on all imports; the Israel Airports Authority monopoly, which raises the price of every airline ticket by a significant percentage; and the cement monopoly, which raises housing prices.

Even the myth of our cheap food prices has recently come a cropper. It's simply not true any longer. The reasons for this include bans on imports, protective tariffs and administrative quotas, all of which prevent competition from imports. And therefore, food prices are high.

The need to make many products kosher also adds to the price. For instance, it is forbidden to import nonkosher meat, which is much cheaper.

Consider the dairy industry. This industry operates as a cartel, and there is also a sweeping ban on importing milk or dairy products, except in purely symbolic amounts. Moreover, Tnuva buys all its milk from the dairy farmers at an identical "target price." Consequently, there is no competition. The result is that the cost of milk production at Israeli dairies is 28 percent higher than it is in the European Union and 45 percent (! ) higher than in the United States. If we add in Tnuva's domination of the milk products market, the result is inevitable: high prices for all such products.

Once, we used to boast of our cheap fruit and vegetable prices, but today, this, too, is no longer true. Even worse, nowhere in the Western world do you find fruits and vegetables of such poor quality as those sold in our major supermarket chains. For when there is no competition from imports, you can abuse the consumers to your heart's content.

I also asked a moshav chicken farmer why fresh chicken here is not as good as it is in Canada or France. He replied that the entire industry is controlled by the slaughterhouse owners, and they have various ways of persuading the growers not to deviate from the norm.

So that is how we reached Iceland's price levels. But Iceland residents at least have one comfort we are denied: Prices may be sky-high, but summer temperatures are much less so.

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The priority of Israel is security. This has created a macro mentality.
In order to implement economic reforms, one has also to implement
policies that bring political stability domestic and international. One
cannot have micro economic reforms when a political macro mentality
takes precedence.

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